BEIT HANOUN, Gaza Strip - Israeli tank shells ripped through a residential neighborhood in the northern Gaza Strip early Wednesday, killing at least 18 members of an extended family, including eight children as they slept, Palestinian health officials and witnesses said.

Hamas' exiled leader, Khaled Mashaal, said that a truce with Israel was finished and appealed to all Palestinian factions to resume attacks: "There must be a roaring reaction so that we avenge all those victims.''

The Islamic group's military wing in Gaza urged Muslims worldwide to attack U.S. targets, a call disavowed by the Hamas-led Palestinian government.

Israel halted artillery attacks in Gaza while it investigated the shelling, but said operations would continue against Palestinian rocket squads. Both Defense Minister Amir Peretz and Prime Minister Ehud Olmert expressed regret at the loss of civilian life and offered humanitarian and medical assistance to the Palestinian Authority.

The tank shells landed around a compound of four apartment buildings in Beit Hanoun, the town that has been the focus of a weeklong Israeli offensive.

Gaping holes were torn into the structures, owned by four brothers from the al-Athamna family who lived side by side. Blood pooled in front of the houses.

Asma al-Athamna, 14, said her family was woken early Wednesday by the sound of an explosion. Her mother quickly ordered everyone out of the house. "She was saying, 'There is shelling.'''

Another shell landed as the family fled, killing the girl's mother, older sister and brother-in-law. "They were killed when they came out of our house," the weeping girl said, speaking from her hospital bed. "I was behind them and I was wounded. "

Bits of dismembered bodies were plastered to walls of the damaged buildings and lying on the ground. A woman's headscarf, children's boots and slippers, and a pair of jeans — all burnt — were strewn outside.

"I saw people coming out of the house, bleeding and screaming. I carried out a young girl covered with blood," said 35-year-old Rahwi Hamad. "We saw legs, hands, parts of heads stuck to the wall. There was a smell of blood and the stench of burnt bodies.''

A young man, standing in the bloodied alleyway, said an infant girl had been blown to pieces. "I tried to look for her head, I tried to look for her head," he shrieked, then sank to the ground, weeping.

Weeping relatives gathered outside the homes. One man dipped his hand in victims' blood and smeared it all over his face. "God avenge us, God avenge us," he wailed.

Khaled Radi, a health ministry official, said all the dead belonged to the al-Athamna family. About 60 people were wounded, including 26 children, the ministry said.

The Israeli army said it had fired artillery at suspected rocket launching sites early Wednesday, but the targets were far from the apartment compound.

In Gaza, Palestinian President Mahmoud Abbas said the ``terrible, despicable crime" jeopardized peace prospects. "We tell the Israelis, you are not seeking peace at all, but are destroying all chances for peace. You must therefore bear all the consequences of these crimes," he told Palestine TV.

Prime Minister Ismail Haniyeh of Hamas suspended talks with Abbas on forming a coalition government. Abbas, a moderate from the rival Fatah party, urged that negotiations continue. Both men declared a three-day mourning period throughout the West Bank and Gaza and, in a rare gesture, the two visited victims in a Gaza hospital together and each donated blood.

After the explosions, thousands of people, including relatives of the dead, gathered outside Kamal Adwan hospital in northern Gaza, where some of the bodies were brought. Many called for revenge.

Mashaal, Hamas's Syria-based leader, said his group was abandoning a February 2005 truce and would resume attacks, raising the prospect of a new wave of suicide bombings. Scores of Israelis have been killed in attacks by Hamas over the past decade.

"The armed struggle is free to resume, and the resistance is dictated by local circumstances," he told Al-Jazeera from Damascus.

Hamas militants in Gaza, accusing the U.S. of supporting Israel, urged Muslims around the world to target "the American enemy.''

But Ghazi Hamad, spokesman for the Hamas-led government, said the group had no intention of attacking American targets. Israel, he added, "is a state that believes in killing, and therefore this state should cease to exist.''

The killing of Palestinian civilians in the past has often preceded a sharp escalation of violence. A series of deadly incidents last summer, including a June 9 explosion on a Gaza beach that killed eight civilians, was followed by the capture of an Israeli soldier and an ensuing Israeli invasion of Gaza.

The civilian deaths drew swift condemnations around the world. France and Russia warned of an escalation of hostilities, and the British foreign secretary, Margaret Beckett, demanded that Israel ``respect its obligation to avoid harming civilians.''

"It is hard to see what this action was meant to achieve and how it can be justified," she said in a statement.

The U.N. special envoy to the Middle East, Alvaro de Soto, said he was "deeply appalled and shocked." Jordan, one of three Muslim states with diplomatic ties to Israel, denounced the "heinous massacre.''

Spontaneous demonstrations erupted across Gaza and the West Bank. In the Gaza town of Beit Lahiya, thousands called for revenge and chanted, "Death to Israel, death to America." Black smoke billowed into the skies of northern Gaza as protesters set tires ablaze.

The bloodshed in Beit Hanoun followed a weeklong Israeli takeover of the town in pursuit of militants who launch rockets at southern Israel. More than 50 Palestinians, most of them gunmen, were killed before Israeli troops withdrew on Tuesday.

"The Israeli operation throughout the Gaza Strip will continue as long as Qassam rockets land in Israel, as long as the smuggling of weapons into the Gaza Strip continues and as long as the Hamas government chooses for the Palestinians in the Gaza Strip to continuously provoke Israel," said Miri Eisin, a government spokeswoman.